Gozgor, Giray and Erzurumlu, Yaman O. (2010): Causality relations between foreign direct investment and portfolio investment volatility. Published in: Middle Eastern Finance and Economics No. 8 (1 December 2010): pp. 172-178.
This is the latest version of this item.
Download (106kB) | Preview
Following the liberalization of financial markets, Goldstein and Razin (2006) show that there is an information based trade-off between foreign direct investment and foreign portfolio investment, our paper examines the causality relations between foreign direct investment and volatility of foreign portfolio investment. Utilizing monthly and quarterly data set of Czech Republic, Poland, Russia and Turkey, volatility of portfolio investments, which indicated evidence of ARCH effects for all four countries, have been estimated by best fitting GARCH (p,q) models. Further, potential causality has been examined by Granger (1969), Sims (1972) and Toda and Yamamoto (1995) test methods. Results indicated that, for Russia and Turkey foreign direct investment has a significant cause on portfolio investment volatility. However for Czech Republic and Poland, there is no such significant relationship has been found. Finally further investigation of a possible structural break due to EU membership could not provide such evidence for Czech Republic and Poland in related variables.
|Item Type:||MPRA Paper|
|Original Title:||Causality relations between foreign direct investment and portfolio investment volatility|
|English Title:||Causality Relations between Foreign Direct Investment and Portfolio Investment Volatility|
|Keywords:||Foreign Direct Investment, Foreign Portfolio Investment, Eastern Europe, Causality|
|Subjects:||F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment ; Long-Term Capital Movements|
|Depositing User:||Giray Gozgor|
|Date Deposited:||27 Oct 2011 15:02|
|Last Modified:||27 Aug 2016 05:01|
Ahmad, Y., Cova, P. and Harrison, R., 2004. “Foreign Direct Investment Versus Portfolio Investment: A Global Games Approach”, University of Wisconsin-Whitewater Working Paper.
Albuquerque, R., 2003. “The Composition of International Capital Flows: Risk Sharing Through Foreign Direct Investment”, Journal of International Economics, 61, p. 353−383.
Balasubramanyam, V.N., Salisu, M. and Sapsford, D., 1996. “Foreign Direct Investment and Growth in EP and IS countries?”, Economic Journal, 106, p. 92–105.
Bekaert, G. and Harvey, C.R., 1998. “Capital Flows and the Behavior of Emerging Market Equity Returns”, NBER Working Paper Series, 6669.
Bekaert, G. and Harvey C.R., 2003, “Emerging Markets Finance”, Journal of Empirical Finance, 10, p. 3-55.
Bollerslev, T. (1986). “Generalized Autoregressive Conditional Heteroskedasticity”, Journal of Econometrics, 31, p. 307-328.
Borensztein, E., Gregorio, J. and Lee, J., 1998. “How Does Foreign Direct Investment Affect Growth?”, Journal of International Economics, 45, p. 115–135.
Broner, F.A. and Rigobon, R., 2004. “Why Are Capital Flows So Much More Volatile In Emerging Than In Developed Countries?”Available at SSRN: http://ssrn.com/abstract=884381.
Calvo, G. and Mendoza, E.G., 2000. “Rational Contagion and the Globalization of Securities Markets”, Journal of International Economics, 51, p. 79–113.
Chuhan, P., Perez-Quiros, G. and Popper, H., 1996. “International Capital Flows: Do Short- Term Investment and Direct Investment Differ?”, World Bank Policy Research Working Paper, 1669.
Claessens, S., Dooley, M.P. and Warner, A., 1995. “Portfolio Capital Flows: Hot or Cold?”, The World Economic Review, 9, p. 153–174.
Engle, R.F. (1982). “Autoregressive Conditional Heteroskedasticity with Estimates of the Variance of United Kingdom Inflation”, Econometrica, 50, p. 987–1007.
Engle, R.F. (2001). “The Use of ARCH/GARCH Models in Applied Econometrics”, Journal of Economic Perspective, 15, p. 157-168.
Ferreira, A.M. and Laux P.A., 2009. “Portfolio Flows, Volatility and Growth”, Journal of International Money and Finance, 28, p. 271-292.
Gabriele, A., Boratav, K. and Parikh, A., 2000. “Instability and Volatility of Capital Flows to Developing Countries”, World Economy, 23, p. 1031–1056.
Granger, C.W.J., 1969. “Investigating Causal Relations by Econometric Models and Cross Spectral Methods”, Econometrica, 37, p. 424-438.
Goldstein, I. and Razin, A., 2006. “An Information Based Trade-off between Foreign Direct Investment and Foreign Portfolio Investment”, Journal of International Economics, 70, p. 271- 295.
Haley, M.A., 2001. Emerging Market Makers: The Power of Institutional Investors: Financial Globalization and Democracy in Emerging Markets. Macmillan, London, p. 74–90.
Kraay, A., 1998. “In Search of the Macroeconomic Effects of Capital Account Liberalization”, World Bank.Working Paper.
Kwiatkowski, D., Phillips, P.C.B., Schmidt, P. and Shin, Y. (1992). “Testing the Null Hypothesis of Stationarity against the Alternative of a Unit Root”, Journal of Econometrics, 54, p. 159–178.
Levchenko, A. and Mauro, P., 2007. “Do Some Forms of Financial Flows Help Protect from Sudden Stops?”, World Bank Economic Review, 21, p. 389–411.
Lichtenberg, F. and van Pottelsberghe de la Potterie, B., 1996. “International R&D Spillovers: A Re-examination”, NBER Working Paper, 5668.
Lipsey, R.E., 1999. “The Role of Foreign Direct Investment in International Capital Flows”, NBER Working Paper, 7094.
Lipsey, R.E., 2001. “Foreign Direct Investment in Three Financial Crises”, NBER Working Paper, 8084.
Neumann, R.M., Penl, R. and Tanku, A., 2009. “Volatility of Capital Flows and Financial Liberalization: Do Specific Flows Respond Differently?”, International Review of Economics and Finance, 18, p. 488-501.
Phillips, P.C.B. and Perron, P. (1988). “Testing for a Unit Root in Time Series Regression”, Biometrika, 75, p. 335-346.
Razin, A., 2002. “FDI Contribution to Capital Flows and Investment in Capacity”, NBER Working Paper, 9204.
Razin, A. and Sadka, E., 2003. “Gains from FDI Inflows with Incomplete Information”, Economics Letters, 7, p. 71–77.
Sarno, L. and Taylor, M., 1999. “Hot Money, Accounting Labels and the Permanence of Capital Flows to Developing Countries: An Empirical Investigation”, Journal of Development Economics, 59, p. 337–364.
Sims, C.A., 1972. “Money, Income and Causality”, American Economic Review, 62, p. 540- 552.
Strazicich, M.C., Co, C.Y. and Lee, J., 2001. “Are Shocks to Foreign Investment in Developing Countries Permanent or Temporary? Evidence from Panel Unit Root Test”, Economic Letters, 70, p. 405-421.
Sula, O. and Willett, T.D., 2009. “The Reversibility of Different Types of Capital Flows to Emerging Markets”, Emerging Markets Review, 10, p. 296-310.
Teaser, L. and Werner, I., 1995. “Home Bias and High Turnover”, Journal of International Money and Finance, 14, p. 467–493.
Toda, H.Y. and Yamamoto, T., 1995. “Statistical Inferences in Vector Autoregressions with Possibly Integrated Processes”, Journal of Econometrics, 66, p. 225-250.
UNCTAD, 1998. World Investment Report: Trends and Determinants, Overview. United Nations, New York.
World Bank, 1999. Global Development Finance. The World Bank, Washington DC.
Available Versions of this Item
- Causality relations between foreign direct investment and portfolio investment volatility. (deposited 27 Oct 2011 15:02) [Currently Displayed]